Seaver v. Lindback (In re White)

• Decision Date: 09 September 2016
• Docket Number: BKY 15-42150-MER,Adv. No. 15-04211
• Parties: In re: Karen White, Debtor. Randall L. Seaver, Trustee, Plaintiff, v. Rita Lindback, Defendant.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota

557 B.R. 736

In re: Karen White, Debtor.Randall L. Seaver, Trustee, Plaintiff,

v.Rita Lindback, Defendant.

BKY 15-42150-MER

Adv. No. 15-04211

United States Bankruptcy Court, D. Minnesota.

Signed September 9, 2016

Randall L. Seaver, Burnsville, MN, pro se.

Matthew D. Swanson, Fuller, Seaver, Swanson & Kelsch PA, Burnsville, MN, for Plaintiff.

David C. Olson, Lanners and Olson, P.A., Plymouth, MN, for Defendant.

MEMORANDUM DECISION AND ORDER FOR JUDGMENT

Michael E. Ridgway, United States Bankruptcy Judge

At Minneapolis, Minnesota, September 9, 2016.

The matter pending before the Court is the Plaintiff's motion for summary judgment. The Court heard oral argument on August 11, 2016. Matthew D. Swanson, Esq., appeared on behalf of the Plaintiff (the “Trustee” or the “Plaintiff”); David C. Olson, Esq., appeared on behalf of the Defendant (“Lindback” or the “Defendant”). The Court requested and received supplemental documents from Defendant's counsel¹ and the matter is now ready for resolution.

This is a core proceeding under 28 U.S.C. § 157(b)(2), and this Court has jurisdiction under 28 U.S.C. §§ 157(a) and 1334. The Court makes this memorandum decision based on all the files, records, and proceedings herein, and pursuant to Fed. R. Bank. P. 7056. For the reasons set forth below, the Trustee's motion will be granted.

THE SUMMARY JUDGMENT STANDARD

Summary judgment is governed by Federal Rule of Civil Procedure 56, which is made applicable to this motion by Federal Rule of Bankruptcy Procedure 7056. Rule 56(a) provides: “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Thus, when a party files a motion for summary judgment, it has put the issue that there are no disputed material facts before the trial court. The moving party must advise the court of all evidence which it believes demonstrates the absence of a genuine issue of material fact, and that it is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; City of Mt. Pleasant, Iowa v. Associated Elec. Co-op . , Inc., 838 F.2d 268, 273 (8th Cir.1988). Once the movant has made its showing, the burden shifts to the non-moving party, who must establish by its own affidavits, or other admissible evidence, that there are specific and genuine issues of material fact warranting a trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The non-moving party must present specific, significant, and probative evidence supporting its case. Johnson v. Enron Corp., 906 F.2d 1234, 1237 (8th Cir.1990).

“Summary judgment is appropriate if the evidence, viewed in the light most favorable to the [non-moving party] and giving [the non-moving party] the benefit of all reasonable inferences, shows there are no genuine issues of material fact and [the moving party] is entitled to judgment as a matter of law.” Price v. Northern States Power Co., 664 F.3d 1186, 1191 (8th Cir.2011). Stated another way, summary judgment must be entered if, after adequate discovery time, the party against whom relief is sought fails to make a sufficient showing to establish the existence of an element essential to its case upon which it will bear the burden of proof in trial. Celotex, 477 U.S. at 327, 106 S.Ct. 2548.

Initially, it is the burden of the movant to inform the court of the basis for the motion, and identify those portions of “the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex, 477 U.S. at 324, 106 S.Ct. 2548. Once the movant has made its showing, the burden of production shifts to the nonmoving party which must “go beyond the pleadings and by [its] ... own affidavits, or by the ‘depositions, answers to interrogatories, and admissions on file,’ ” and establish that there are specific and genuine issues of material fact warranting a trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (quoting former Fed. R. Civ. P. 56(c) ). The non-moving party cannot cast some metaphysical doubt on the moving party's assertion. Matsushita Elec. Indust. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The non-moving party must present probative evidence supporting its case sufficient “to require a ... judge to resolve the parties' differing versions of the truth at trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (quoting First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 288–89, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968) ).

In sum, the movant must show there is an absence of evidence to substantiate the nonmoving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. Lastly, the “salutary purpose” served by summary judgment is to permit the speedy and expeditious disposal of cases where the pleadings do not—as a matter of fact—present any substantial question for determination. Avrick v. Rockmont Envelope Co., 155 F.2d 568, 571 (10th Cir.1946). This action is ripe for summary judgment.

BACKGROUND

The Trustee initiated an avoidance action under Minn. Stat. § 513.45(b), made applicable to bankruptcy proceedings by virtue of 11 U.S.C. § 544. He seeks to avoid, and recover for the benefit of the estate, the sum of $41,356.24, which the Debtor paid to Lindback (her mother), May 27, 2014, as partial repayment of a series of unsecured loans totaling $71,500.00 Lindback had made to the Debtor between February 2012 and December 2013.

The loans were made to the Debtor to enable her to complete an expansion to the business she owned, Diamond in the Rough, LLC, a horse boarding and riding facility located near Dayton, Minnesota. The improvements included a large indoor riding ring, tack barn, and a social room for her clients. The Debtor made regular monthly payments to her mother from March 2012 to February 2013. No further payments were made by the Debtor until May 2014, when she liquidated certain stock interests she owned, and paid Lindback the $41,356.24² as partial repayment of the loans.³

THE MINNESOTA STATUTE

The Trustee's one-count complaint invokes Minn. Stat. § 513.45(b), often referred to as “the Minnesota preference statute,” which states:

(b) A transfer made by a debtor is voidable as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

Minn. Stat. § 513.45(b). Under this statute, the Trustee has the burden of establishing the following elements:

• the Debtor made a transfer to Lindback;

• the transfer was made to an insider;

• the transfer was made on account of an antecedent debt;

• the Debtor was insolvent at the time of the transfer; and

• the insider (Lindback) had reasonable cause to believe that the Debtor was insolvent.⁴

The Defendant concedes, as well she must, that the trustee has met his burden in establishing all of these elements save the last: that the Defendant had reasonable cause to believe that the Debtor was insolvent. The Defendant also asserts that the transfer at issue was made in the “ordinary course of business” of the Debtor and herself. Each defense will be addressed in turn.

A. The “Ordinary Course of Business” Defense

In her response to the Plaintiff's motion for summary judgment, the Defendant asserted that “[t]he payments made by the debtor to the Defendant were made in the course of business or financial affairs of the debtor and the Defendant. Minn. Stat. § 513.48(f)(2).” See ECF No. 15, p. 2. This defense was not raised in the Defendant's answer, nor was it raised in any other pleading. This “ordinary course of business” defense is recognized under Minnesota state law as a valid defense to the Trustee's cause of action. He claims, however, that the Defendant has waived her right to assert such affirmative defense.

Fed. R. Civ. P. 8(c), made applicable to this proceeding under Fed. R. Bankr. P. 7008, provides that, “In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense, including: ....” Similarly, its state law counterpart, Minn. R. Civ. P. 8.03, states, in pertinent part: “In pleading to a preceding pleading, a party shall set forth affirmatively accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy ... and any other matter constituting an avoidance or affirmative defense.”

In her reply to the Trustee's waiver argument, the Defendant points to both the federal rule and its state counterpart, neither one of which, she urges, specifically lists the “ordinary course of business” as an affirmative defense that is required to be pleaded. “Defendant's position, that the payments received by the debtor were made in the ordinary course of the business or financial affairs of the debtor negates elements of Plaintiff's prima facie case.” ECF No. 19, p. 2.

This Court disagrees with that argument. First, both the federal rule and the state rule are phrased as being inclusive , and not exhaustive . In other words, the absence of the ordinary course of business defense in the list of various kinds of defenses that may be asserted to a cause of action does not mean that it should not be considered as an affirmative defense. Second, the defense does not go to any element of the Trustee's avoidance action. Simply put, it is an affirmative defense that must be specifically pleaded at an early state of the proceeding.

Failure of a party to assert, in a timely fashion, an affirmative defense, can result in a waiver of it. “Alleged debtor's status as a farmer does not go to the jurisdiction of the bankruptcy court over an involuntary petition but, instead, is an affirmative defense...